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Old Decisions
Looking for R(IS)08/92 without success - would anyone have a copy? Thanks in advance.
The full decision is on our SS Law electronic database, but here’s ths start:
R(IS) 8/92
Formerly CIS/379/1991
Capital - shares in a company - whether claimant’s position “analogous to that of ... partner in the business” - whether minority holding of shares subject to pre-emptive rights has a value
The claimant had been an executive director in his family’s company. On resigning his office he received compensation of £50,000 plus a fixed-term loan of £50,000. He held shares in the company, some of which he sold using the proceeds to pay debts and reduce his mortgage. The remaining shares were subject to an agreement whereby the claimant undertook not to sell them, save in specific circumstances, nor pledge them as security. The company agreed to release him from restriction, after a specified date, in respect of 3,000 of the shares which could be used to secure a loan not exceeding £50,000.
The adjudication officer obtained a valuation of the shares from the company’s accountants. Based on the net value of the company the shares were worth in excess of £196,000 but it was stated that the shares were not marketable because of a pre-emptive agreement. The adjudication officer nevertheless decided that the claimant had capital in excess of the prescribed limit of £8,000. On appeal the tribunal confirmed the adjudication officer’s disallowance of benefit but on different grounds: they held that the loan of £50,000 received from the company was not capital and that the shares owned by the claimant had a nil value except for the 3,000 released from restriction, which were worth in excess of £8,000. The claimant appealed to the Commissioner.
Held that:
1. the question whether the claimant is “in a position analogous to that of a partner” for the purpose of reg. 51(4) of the IS (Gen) regs. 1987 is not defined and is a question of fact in each individual case. However, some broad principles apply:
(a) it is not enough to say that the criterion is whether or not the claimant participates in the business. A claimant may be a “partner” even when he is not undertaking activities in the course of the business (para. 8);
(b) partnerships are normally fairly small concerns involving a limited number of personnel (para. 9);
(c) for a claimant with shares in a limited company to be treated as being analogous to a “partner” he should be in a position to exercise significant influence over the way in which the business is conducted. A shareholder in a company who is not in such a position and who has no direct or indirect participation in the trading activities of the business is purely an investor (paras. 8 and 9);
2. a claimant’s shares in a company, even those subject to a pre-emptive rights provision, do have a value and this should be calculated in accordance with reg. 49 of the IS(Gen) Regs. 1987. Any incumbrance can be deducted from the value of the shares. Any pre-emptive rights provisions fall to be considered under the principles laid down in IRC v. Crossman, IRC v. Mann (1937) AC 26. The value of the shares should be estimated at the price they would fetch if sold on the open market, subject to the Articles of Association, including the pre-emptive rights provision, and the terms of any resignation agreement (para. 11);
3. the fixed term loan of £50,000 was capital freely available to the claimant, notwithstanding that he was obliged to repay it after the stated term. R(SB) 14/81 affirmed; R(SB) 12/86 distinguished (para. 15).
Thank you both.
Much appreciated.
and I have the original from the OSSCS website - don’t search 08/92…..Just 8/92….
https://administrativeappeals.decisions.tribunals.gov.uk/judgmentfiles/j420/Is08_92.doc